Calcutta High Court
Perfecto Electricals & Ors vs Simplex Infrastructures Limited & Ors on 8 December, 2017
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
OD-2
AP 1050 OF 2017
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
PERFECTO ELECTRICALS & ORS.
Versus
SIMPLEX INFRASTRUCTURES LIMITED & ORS.
.........
BEFORE:
The Hon'ble JUSTICE ASHIS KUMAR CHAKRABORTY Date : 8th December, 2017.
Mr. Joy Saha, sr. advocate, Mr. A. Dutta, Mr. A.K. Awasthi, Mr. Z. Haque...for petitioners.
Mr. Soumen Ghosh, Mr. S. Sen...for respondent no.1.
The Court : In this application under section 9 of the Arbitration and Conciliation Act, 1996, as amended by Act 3, 2016 (in short "the Act of 1996") the petitioners have prayed for an order of injunction restraining the respondent no.1 from invoking the bank guarantee dated November 13, 2014 furnished by the petitioner no. 1 through the State Bank of Bikaner & Jaipur (presently known as "the State Bank of India"), till the disposal of the arbitral proceeding. They have further prayed for an order of injunction restraining the respondent no.3 from invoking the bank guarantee dated November 4, 2013 furnished in 2 its favour by the respondent no. 1, through the State Bank of Bikaner and Jaipur till the disposal of the arbitral proceeding.
Although a copy of this application has not been served upon any of the respondents but Mr. Soumen Ghosh, learned advocate appeared for the respondent no.1 and submitted that the petitioner should be directed to serve a copy of this application on the respondent no.1 and he should be allowed to take some instruction in the matter. He prayed for adjournment of the hearing of this application. However, Mr. Saha, learned senior counsel appearing for the petitioner submitted that if a copy of this application is served upon the respondent no.1, it shall invoke the bank guarantee issued by the petitioner and render this application infructuous. He, therefore, urged that the petitioner be allowed to move this application ex-parte.
In view of the submissions made on behalf of the petitioners, this application is taken up for ex parte hearing.
The petitioner no. 1 is a partnership firm and the petitioner nos. 2 and 3 are the partners thereof.
The facts urged by the petitioners in this application are that in order to submit a bid, in response to a notice issued by the respondent no.3 (Railway Vikas Nigam Ltd.) inviting bids for construction of the Road Bed, Major and Minor Bridges, Track Linking (excluding supply of Rails & Main Line PSC Sleepers), S&T, OHE, TSS & General Electrical works in connection with double line work, between Kota and Bina under the West Central Railway in the State of Rajasthan and Madhya Pradesh, India (hereinafter referred to as "the said project"), the petitioner no.1 entered into a Memorandum of Understanding dated December 22, 2012 with the respondent nos.1 and 2 (hereinafter referred to as the "joint venture 3 agreement") to form a joint venture namely, Simplex-BPCL/PERFECTO (J.V.) (hereinafter referred to as "the joint venture"). As per clause 13 of the joint venture agreement, all disputes and controversies between the parties thereto shall be adjudicated by arbitration as per the Act of 1996 and the venue of the arbitration shall be Delhi.
The joint venture submitted its bid to the respondent no.3 for the project comprising three packages, namely, package 1, package 2 and package 3. On October 15, 2013, the respondent no.3 issued two letters of acceptance of the bid submitted by the joint venture in respect of package 2 and package 3 of the said project at Rs.260,16,40,538/- and Rs. 252,33,99,659/-, respectively. Clause 4 of the said letters of acceptance dated October 15, 2013 required the joint venture to furnish performance security of Rs.3,64,58,306/- and Rs. 3,68,42,029, respectively. The said letters of acceptance were followed by the agreements dated December 13, 2013 between the respondent no.3 and the joint venture in respect of package 2 and package 3 of the project, respectively. The petitioner no. 1 and the petitioner nos. 2 and 3 also entered into a supplemental agreement dated December 12, 2013 to the joint venture agreement (hereinafter referred to as the said "supplemental agreement") providing their respective rights and obligations towards performance of the phase 2 and 3 of the project.
The scope of work in respect of the package 2 and package 3 of the project, of the respondent no. 1 constituted civil engineering and construction work, that of the respondent no. 2 constituted overhead electrical work and the petitioner no. 1 was required to erect and instal the signals and its ancillaries.
In terms of the said agreements dated December 13, 2013 and the other related terms and conditions of the joint venture agreements between the petitioner and the respondent 4 nos. 1 and 2, the respondent no.1 furnished two performance bank guarantees, being issued by the State Bank of Bikaner and Joypur (presently known as State Bank of India) for Rs.2,96,62,236/- and Rs.2,89,18,199/-, respectively in favour of the respondent no. 3, towards the job to be performed by the petitioner under package 2 and package 3 of the said project, respectively. Thereafter, as per the terms of the joint venture agreement and the said supplemental agreement the petitioner also issued two bank guarantees both dated November 13, 2014 being issued by State Bank of Bikaner and Jaipur (presently known as State Bank of India) for Rs.2,96,62,236/- and Rs.2,89,18,199/- as the counter performance bank guarantees in favour of the respondent no.1.
It is the case of the petitioners that the scope of work of the petitioner no. 1 under the said agreement dated December 13, 2013 related to package 2 and package 3 for installation of the signaling system, would arise only after completion of the civil work and the overhead wearing system by the respondent nos.1 and 2, respectively.
The petitioners allege that the stipulated time for completion of the package 2 and package 3 of the said project expired on May 26, 2017, but as the respondent nos.1 and 2 did not complete their scope of the work and there was also default on the part of the respondent no.3 in issuing the correct drawings for the signaling work, the petitioner no. 1 cannot complete the signaling work. In this regard, a reference has been made to a letter dated November 28, 2017 issued by the respondent no.3 to the said joint venture showing that after expiry of the stipulated date of completion of the contract, the respondent no. 3 issued various drawings relating to the scope of work of the petitioner no. 1, package 3. It is strongly contended that when there were the lapses on the part of the respondent nos. 1, 2 and 3 to discharge their respective obligations under the joint venture agreement and the 5 said agreements dated December 13, 2013, respectively preventing the petitioner no. 1 to complete its work either under package 2 or package 3 of the said project, on November 9, 2017 the respondent no.3 wrongfully and illegally terminated the contract of the said joint venture relating to package 2 and invoked the first bank guarantee issued by the respondent no. 1 for Rs.2,96,62,236/- and thereafter, the latter in its turn has also invoked the corresponding counter bank guarantee of equal amount furnished by the respondent no. 1.
According to the petitioners, when the records of the case did not reflect that it had ever committed any default to perform its obligation under the said agreement dated December 13, 2013 relating to the work of signaling even under package 3 of the contract, on November 17, 2017 the Project Management Consultant of the respondent no.3 issued a letter to the said joint venture alleging that there has been poor performance on the part of the latter towards the scope of work under package 3 and unless the progress of the work is not regularised, within 14 days, agreement dated December 13, 2013 for package 3 is likely to be terminated. By the letter dated November 29, 2017 addressed to the joint venture, the petitioner no. 1 denied all the allegations against it made in the said letter dated November 29, 2017 issued by the Project Management Consultant of the respondent no. 3. According to the petitioner, in spite of the expiry the stipulated date of contract, the respondent no. 1 has renewed the performance bank guarantee issued by it through its aforesaid banker in favour of the respondent no. 3. The petitioner no. 1 has also renewed the corresponding does counter guarantee in favour of the respondent no. 1.
Mr. Saha, learned senior counsel appearing for the petitioners strenuously contended that in the present case, when it is evident that even after expiry of the stipulated period of contract the respondent no.3 has treated the contract of the joint venture to be subsisting and 6 it issued the fresh drawing relating to the work to be carried out by the petitioner no.1 in respect of the package 3, the respondent no.3 should not be allowed to take any step for invocation of the performance bank guarantee issued by the respondent no.1 relating to the work under package 3. It was argued that if the respondent no.3 is allowed to invoke the bank guarantee of Rs.2,96,62,236/- issued by the respondent no.1, the latter would also encash the counter bank guarantee of equal amount issued by the petitioner no. 1 leaving the petitioners in a ruinous State. The petitioners have alleged collusive and fraudulent acts on the part the respondent nos. 1, 2 and 3 failing to discharge their respective obligations in relation to package 3 of the said project and seeking to hold the petitioner no. 1 solely responsible for the delay in competition of package 3 of the said project and exposing the latter to huge business loss resulting from the threat of wrongful invocation of the counter performance guarantee by the respondent no. 1. Therefore, according to Mr. Saha, there exits special equity in favour of the petitioners for obtaining orders of injunction as prayed for in this application.
I have considered the materials on record, as well as the submissions made by the learned senior counsel appearing for the petitioners. This application has been filed under section 9 of the Act of 1996. The case sought to be made out by the petitioners is that all the respondents failed to discharge the respective part of their obligations relating to package 3 and all these have prevented the petitioner to complete it's part of the work for signaling and other ancillary work under package 3 of the project. Now, the disputes between the petitioner no. 1 and the respondent nos. 1 and 2 with regard to the alleged failure on the part of any of them to perform their respective portions of the scope of work relating to package 3 of the said project are to be adjudicated as per the abitral agreement contained in the joint 7 venture agreement and the respondent no. 3 cannot be a party to the arbitral said proceeding, nor any alleged dispute relating to termination of the agreement dated December 13, 2013 by the respondent no. 3 can be adjudicated in such arbitral proceeding.
However, the alleged disputes which might arise due to termination of the contract dated December 13, 2013 relating to the project under phase 3 and the invocation of the performance bank guarantee of the respondent no. 1 are to be adjudicated in the separate arbitral proceeding between the joint venture and the respondent no. 3 as per the separate arbitral agreement contained in the agreement dated December 13, 2013, relating to phase 3 of the said project. In the said arbitral proceeding the alleged disputes between the petitioner no. 1 and the respondent nos. 1 and 2 with regard to their failures to perform the respective portions of their scope of work under phase-3 of project or with regard to the right of the respondent no. 1 under the supplemental agreement between them to invoke the counter guarantee issued by the petitioner cannot be adjudicated. In the present case, the petitioner no. 1 had furnished the counter performance guarantee to the respondent no. 1 in discharge of its obligation under the joint venture agreement and the said supplemental agreement. When the right of the respondent no. 3 to terminate the agreement dated December 13, 2013 is not dependent upon the rights and obligations of the members of the joint venture vis-à- vis themselves under the joint venture agreement and the said supplemental agreement. I do not find any commonality of the subject matter of disputes with regard to any threat of the respondent no. 3 to invoke the performance bank guarantee furnished by the respondent no. 1 and the right of the latter, if any under the joint venture agreement or the said supplemental agreement to be adjudicated upon in any common arbitral proceeding. This is more so when the said agreement dated December 13, 2013 between the respondent no. 3 8 and the joint venture does not make any reference even in an implied manner to the said joint venture agreement or the supplemental agreement separately entered into by the members of the joint venture. For all these reasons, this application seeking relief with regard to invocation of two separate bank guarantees, issued by the respondent no. 1 and the petitioner, under different contracts, in favour of different parties is not maintainable.
Even it be accepted for the sake of argument that the present application as framed is maintainable, it is settled law that a bank guarantee is a separate contract between the bank and the beneficiary thereof and the bank must honour the contract and make payment of the guaranteed amount to the beneficiary upon its demand, irrespective of the merit of the disputes between the beneficiary and the party at whose instance the bank guarantee is issued. Therefore, in an application under Section 9 of the Act of 1996, pertaining to the contract between the beneficiary of the bank guarantee and the party who issued the same, the Court cannot pass an order of injunction restraining the beneficiary of the bank guarantee from invoking the same. There are, however, two exceptions to the above rule. The first is when there is a clear fraud committed by the beneficiary of an egregious nature as to vitiate the entire underlying transaction. The second exception to the rule general rule of non intervention is when there are "special equities" in favour of injunction, such as when "irretrievable injury" or "irretrievable injustice" would occur if such an injunction were not granted.
In the present case, the petitioners have not been able to substantiate that the agreement dated December 13, 2013 between the respondent no. 3 and the joint venture relating to phase 3 of the project is vitiated by any fraud. Further, the respondent no. 1 has not made any allegation that if the respondent no. 3 terminates the contract relating to phase 9 3 of the said project or invokes the performance bank guarantee, the same would be wrongful or illegal. At any rate, whether the joint venture or the respondent no. 3 has defaulted in performing contract dated December 13, 2013 relating to phase 3 of the project and the disputes that may arise with regard to the validity of any future termination of the said contract or future invocation of the performance bank guarantee supplied by the respondent no. 1 in favour of the respondent no. 3 shall be decided in the arbitral proceeding between the joint venture and the respondent no. 3, as per the arbitral agreement contained in the said agreement dated December 13, 2013.
Similarly, if the respondent no. 1 invokes the counter bank guarantee furnished by the petitioner, all disputes with regard to the validity of such invocation shall be decided in the arbitral proceeding under the arbitral agreement contained in the joint venture agreement, where the petitioner shall have adequate remedy against any wrongful invocation of its counter performance guarantee by the respondent no. 1.
For the reasons as aforesaid, I do not find that the petitioners are entitled to obtain any order in this application.
Accordingly, the application, being AP No.1050 of 2017 stands dismissed. There shall, however, be no order as to costs.
The Registrar, Original Side is directed to forthwith communicate this order to the Chairman and Managing Director and General Manager/Project-III of the respondent no. 3, Railway Vikas Nigam Ltd. having office at August Kranti Bhawan (1st Floor), Bhikaji Cama Place, R.K. Puram, New Delhi - 110066.
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Let an urgent certified website copies of this order, if applied for, be made available to the parties upon compliance of requisite formalities.
(ASHIS KUMAR CHAKRABORTY, J.) pkd./dg2.